Honors Principles of Macroeconomics
Macroeconomics studies economy-wide phenomena. These include how fast
the
economy grows, how many new jobs are created, and how overall prices
will
change. The phenomena emerge from the interactions of consumers,
producers, financial market participants, and governments. Government
policies initiated by the President, Congress, or the Federal Reserve
profoundly affect your economic well being. Fiscal policy determines
your
tax bill and how big a player the government is in the economy.
Monetary
policy influences interest rates charged on credit cards, student
loans,
and car loans. Taken together, monetary and fiscal policy strongly
affect
employment prospects and inflation. A sample of the questions this
course
addresses is:
What are the sources of long-term economic growth?
Why do countries regularly experience episodes of expansion and
recession?
What causes inflation and why do some countries suffer from very
high
inflation, while others get by with little?
How do policy decisions affect the likelihood that you will find
and
keep a job? How do they influence your take-home pay?
How do banks and other financial institutions fit into the macro
economy?
Why does the Federal Reserve feel the need to raise interest rates
to
offset future inflation and lower interest rates to accelerate future
economic growth?
How does the federal government plan to pay off the debt it incurs
through budget deficits?
Are trade deficits bad? Is a strong currency good?
This course will introduce students to the analytical tools
macroeconomists use to address questions like these. The tools
include
basic models of how goods markets, labor markets, and financial
markets
interact to determine overall economic performance. We course also
discusses current economic events.
An important aspect of understanding the macro economy is familiarity
with
macroeconomic data. Some assignments will involve finding recent
macro
data on the World Wide Web. Several relevant links to data sources
are
available from my home page at
http://php.indiana.edu/~eleeper/econlinks.htm
Another important aspect of learning about the macro economy is
staying
abreast of current economic developments. To that end, student are
expected regularly to read a reputable source for economic news and
analysis. Some suggestions of such publications are the Wall Street
Journal, The New York Times, The Financial Times, and The Economist (a
weekly magazine). I will occasionally hand out copies of articles
about
current macroeconomic events. Some of the articles will be discussed
in
class.
The course culminates with a mock Federal Open Market Committee (FOMC)
meeting of the Federal Reserve System. The FOMC is the policymaking
arm
of the Fed and meets every six weeks to decide how to set the
short-term
interest rate. Students play the roles of Federal Reserve officials
and
use Federal Reserve web sites to obtain information about the macro
economy. The meeting ends with a formal vote on the setting of the
interest rate. This exercise pulls together all the material learned
during the semester.
The textbook is Introduction to Macroeconomics, Second Edition by Alan
C.
Stockman. The author is a leading macro/international economist in the
United States. His text is very modern and carefully written, and it
contains a fair amount of actual economic data.
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Eric M. Leeper tel. (812) 855-9157
Department of Economics fax. (812) 855-3736
Indiana University email: eleeper@indiana.edu
304 Wylie Hall
100 S. Woodlawn Ave.
Bloomington, IN 47405
http://php.indiana.edu/~eleeper